Optimal Captive Center Model for Technology Companies

Technology companies such as GE, Texas Instruments and Motorola pioneered offshoring initiatives more than 15 years ago. The focus of these companies was building technology from their Bangalore Centers. Thousands of technology companies have followed that example and are working in various parts of India from their own development centers and through vendor partnerships. Since 2002, the demand for high technology workers in India has increased with the increase for offshoring services. This has resulted in considerable cost increase. Companies that started their India operations in early 2004 are starting to see a cost escalation of 20-30% in the last 6 months especially for engineering talent with 5 or more years of experience. A continuation of this trend will rapidly reduce the cost advantage in urban Indian centers creating serious doubts about the viability of such activities in India.
Zinnov looked at various captive centers of US based companies in India and compared their cost savings to analyze how these operations make a larger impact on their organization’s bottom line. We found that the organizations which utilize their captive centers not just for engineering but also for support functions such as Marketing, Finance, Human resources see a larger cost savings. In this article, we have analyzed the significance of reorganizing the relationship of the captive center management team with the parent organization, and correlate that to an increase in the cost savings from Indian operations.

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